Agriculture employed 42 percent of Romania's labor force in 1999 but generated just 16 percent of GDP. Improving this ratio is one of the biggest challenges facing Romania as it tries to raise living standards and to enter the European Union. One reason for the low productivity of farming is the agricultural reforms started in 1991, which restituted land nationalized under the communists to its former owners or their heirs. A limit was put on the amount of land that could be restituted, in the interests of social equality. The result is that Romania now has the most fragmented agricultural land in Eastern Europe.
The agricultural sector has 2 main components: informal and formal. On the one hand are the estimated 4 million subsistence farmers, which own 60 percent of farmland but produce mostly for their own consumption. These are deemed a social, rather than economic, problem and efforts are focused on improving their living standards, largely by persuading them to move into other jobs. The sheer number of them is a big barrier to European Union entry because, under current EU rules, they would each be entitled to income support. The formal agricultural sector consists of the large farms, which produce for domestic and export markets. Privatization of these began in 1997, though a substantial number are still state-owned.
Agricultural production fell sharply in the early 1990s, followed by a slow recovery. According to the World Bank, total production dropped 20 percent between 1989 and 1998, though gross value-added in the sector has only dropped 1 percent. Droughts in 2000 cut production further, but the underlying problem is the agricultural sector's inefficiency.
The small size of the plots of land makes them uneconomic to farm. In addition, Romania's self-sufficiency drive in the 1980s meant that it started producing crops like rice, which were unsuitable for local conditions. These crops disappeared as soon as agriculture was opened to market forces. Romania also suffered from the Yugoslav wars, from a drop in world commodity prices, and from export barriers imposed by the EU and its Central European neighbors.
These trade barriers have gradually been lifted throughout the 1990s, while the Yugoslav wars have calmed down and prices have risen. But, if Romania is to exploit the new opportunities, it has to increase the efficiency of its farms and of its distribution. The country should be a natural exporter of agricultural goods. It has some of the richest land in the region, with 80 percent of its territory suitable for arable farming. Yet, in 1999, agriculture accounted for just 3.4 percent of the country's exports.